Matteo Benetton, Philippe Bracke, João F Cocco and Nicola Garbarino
Academics have made the case for mortgage products with equity features, so that gains and losses due to fluctuations in house values are shared between the household and an outside investor. In theory, the equity component expands the set of affordable properties, without increasing household debt, and default risk. These products have not become mainstream, but in a recent paper, we study a large UK experiment with equity-based housing finance — the Help To Buy Equity Loan scheme. We find that equity loans are mainly used to overcome credit constraints, rather than to reduce investment risk. Unconstrained household prefer mortgage debt over equity loans, suggesting optimism about house price risk. Equity loans could still contribute to house price inflation: we don’t find evidence that houses purchased with equity loans are overpriced, but an assessment of the aggregate effects is beyond the scope of the paper.
Silvia Miranda-Agrippino, Sinem Hacioglu Hoke and Kristina Bluwstein
Can shifts in beliefs about the future alter the macroeconomic present? This post summarizes our recent working paper where we have combined data on patent applications and survey forecasts to isolate news of potential future technological progress, and studied how macroeconomic aggregates respond to them. We have found news-induced changes in beliefs to be powerful enough to enable economic expansions even if different economic agents process these types of news in very different ways. A change in expectations about future improvements in technology can account for about 20% of the variation in current unemployment and aggregate consumption.
AWE growth has picked up over the past year but stalled in recent months, remaining some way below pre-recession levels. Should we expect that weakness to continue? One way to gauge wage pressures is through the company visit scores (CVS) the Bank’s Agents assign for businesses they meet. Agents score a range of variables, including turnover, employment and costs, -5 to +5, generally according to growth. An anonymised CVS dataset is published on the Bank’s website. Here we look at what CVS say about prospects for pay, considering factors such as recruitment difficulties, low inflation, public sector pay and the National Living Wage. Overall, we think this evidence points to continued modest rates of wage growth over the coming year.